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Sakmongkol ak 47

Saturday, 9 August 2008

The Demons in Deficit Budgets


Very soon, it will be time for the Pahang State Assembly to table its budget. Once again, we will hear assemblymen speak on the budget. They will praise the MB for his sensitivities and so forth. Very few assemblymen will dare go against the current by lamenting the weaknesses in the budget.

It seems that most states are always adopting deficit budgets. This means our income is less than our spending. The simplistic argument on accepting a budget deficit is the 'thing' we find so abhorrent. The thinking behind the wholesale acquiescence of deficit is faulty and not rigorous. The usual line of argument is that we need deficit financing because we need to help the poor and to carry out welfare programs. Come on- we all know that.

But we must also be conscious of the hidden dangers of cumulative budget deficits. For example a state government incurring deficit budget year after year, piles up its debts. The accumulation of deficit expenditure is a cause for concern. How do we pay for the cumulative deficits?

We can of course borrow from the federal treasury or private capital markets. But we can also pay for the amount borrowed by increasing our revenue, making our assets more efficient so that they become productive or sell our existing assets. Our assemblymen must pay attention to this side of the budget equation. Selling off assets cannot be done indefinitely as this action will deplete our capital resources from which we can generate future income. If they are sold, the government loses its revenue generating resources. As a rule, assets should not be sold.

Any responsible government must safeguard its income generating assets for use by future generations. In the same manner, future generation must be spared the agony of having to pay for debts incurred by the present generation.

Perhaps it is useful for our assemblymen to approach this budget issue by asking, why do we incur deficit budget? Or why must our revenue be less than our spending? Then we should ask what can we do to increase our income?

We can incur more spending because:-

Government departments are careless and do not exercise financial discipline. They think the state treasurer is a rich uncle from who you can ask for pocket money in unlimited amounts for an unlimited time. This kind of reasoning is abhorrent.

A budget deficit can be caused by an irrational need to procure funds from the state treasurer. I shall explain. Sometimes a budget is forwarded to prevent cuts in departmental budgets. Departments have an in-build fear that if they do ask for more, they will get less. The gut inclination of government departments is to increase the current budget requirement by a certain percentage above the previous budget. At the end of year, each department will frantically attempt to finish their existing budget it acquired the previous year. If they do not, then the MB will authorise a lower current budget for that department.

A budget deficit can also be a reflection of wasteful expenditure. Have the officers in the department concern scrutinise each sections needs? Do they really need extra manpower? Do sections need extra computers, fax machines, office equipments etc? There are many occasions where departments buy equipment which are either underused or are not usable because their staff are not trained in their usage.

A budget deficit my conceal weakness of government departments in terms of revenue collections. In the state, the primary agents for collecting government revenue are the district offices and municipal councils. If they are weak in their revenue collection duties, then the government receives less income.

A budget deficit may conceal bureaucratic inefficiencies.

A budget deficit reflects poor management

How do we increase income or reduce spending?

By making revenue collection more efficient

By adopting an austere mentality in drawing up budgets

By increasing management efficiency so that revenue generating resources are worked better.

By making government business units more efficient by way of better quality management.

By generating new sources of income.


Beulah 11 November 2008 at 02:44  

Thanks for writing this.

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